Suppose the Home central bank cuts its money supply by 2%. In the very short run we would expect 0 its currency would depreciate in
Suppose the Home central bank cuts its money supply by 2%. In the very short run we would expect 0 its currency would depreciate in the foreign exchange market, but the impact on the exchange rate in the very short run would be the same regardless of whether it is viewed by foreign exchange traders as temporary or permanent. 0 its currency to depreciate in the foreign exchange market, and that depreciation would be larger if the cut is viewed as permanent versus temporary. it would only have an impact on the foreign exchange market in Home. 0 its currency would appreciate in the foreign exchange market, but the impact on the exchange rate in the very short run would be the same regardless of whether it is viewed by foreign exchange traders as temporary or permanent. 0 its currency to appreciate in the foreign exchange market, and that appreciation would be larger if the cut is viewed as permanent versus temporary
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